12-30-2003, 12:03 AM
An interesting Article from The Economist â No URL
<b>Technology in China
The allure of low technology</b>
BEIJING AND HONGKONG
<b>China's misguided attempts to become a high-tech economy</b>
THE country's success in putting a man October, only the third tech nation to do so, was more than just a boost to national pride. It signalled the Chinese government's intention to turn the world's workshop into a technological power house. With an abundance of cheap engineers, growing research spending and plenty of useful foreign intellectual property on hand (and not terribly well protected), many of the necessary building blocks would appear to be in place. <b>To the consternation of many firms in the rich world, China has already become a big exporter of electronic components, DVD players and digital cameras. Chinese manufacturers, such as Legend in personal computers and Ningbo Bird in mobile-phone handsets, have seized leading positions in China's domestic market.</b> A few such as TCL, a TV manufacturer; Huawei, which makes telecoms switching gear; and Haier, a white-goods group-are building a global presence.
<b>This is threatening to inflame already raw trade relations with the rest of the world. The prime minister, Wen Jiabao, recently called on America to open its high tech sector to China in return for trade concessions. Meanwhile, in a bald display of protectionism, foreign computer and chip-makers have been banned (since December lst) from selling some wireless products in China unless they incorporate Chinese encryption standards sourced from 11 named Chinese firms. If the rule is enforced, Dell, Intel, Sony and others may have to choose between sharing technology or curtailing shipments to China.
A handful
So will China become the next technology superpower? Actually, probably not-at least, not anytime soon. Its successes so far are restricted to a handful of firms, most are either protected or exceptional, rising through cracks in China's planned economy. On December l0th, at a seminar in Beijing on Chinese technology organised by China Economic Quarterly, a research publication, Ming Zeng, a professor at Insead, near Paris, and Beijing's Cheung Kong Business School (and a noted optimist on Chinese firms) admitted: "1 spent five years hunting for examples of successful high-tech companies in China. After all that work, I can only find three or four."
Overall, China's technology base remains limited and the capital infrastructure needed to produce advanced, high tech goods largely absent. And while more and more high-tech goods are made in China, almost all the value is being captured by foreign companies (see chart). Writing in the quarterly, Daniel Rosen, a visiting fellow at the Institute for International Economics in Washington, DC, argues that, on close inspection, "China's high-tech exports turn out not to be so very high-tech-nor, indeed, very Chinese."
Of $325 billion of exports in 2002, China's Ministry of Commerce rated only 20% as genuinely high-tech. And those were mostly mature commodities, such as DVD players and laser printers. The brains of these machines, namely their semi conductor chips, were almost all imported-reflected in China's high-tech trade deficit of around $15 billion. What's more, 85% of its high-tech exports between January and August 2003 were accounted for by foreign enterprises in China.</b>
It is the same story with semiconductors, an industry China has explicitly targeted for development. The country is a voracious consumer of chips and an increasingly important location for silicon wafer plants, providing an estimated 19% of world capacity this year. <b>Yet its indigenous industry remains tiny and low-tech. Foreigners control most of the chip plants in China.</b> These, in turn, concentrate on low-value assembly and testing rather than design and manufacture.
<b>While foreigners own virtually all of the intellectual property and most of the high-tech manufacturing capacity in China, piracy will remain an issue. Currently, General Motors, Toyota and Nissan are each embroiled in disputes over stolen copyrights.</b> But Peter Nolan, a China specialist at Britain's Cambridge University Judge Institute of Management, says that the counterfeit issue is overblown, arguing that foreign multinationals generally "have sophisticated ways to protect their hard-won technology". Mr Nolan argues that China's ability to upgrade technology through joint ventures has been exaggerated. So moves to tip the playing field by asserting Chinese standards are actually a sign of weakness rather than strength.
<b>Why has China been so slow to climb the technology ladder? History is one explanation. Under communism, most technological development was state-directed and a disaster. State-owned enterprises still grapple with legacies of poor management and a lack of sophisticated systems. Most private companies are too small yet to pour much money into innovation.</b>
Meanwhile, global corporations are widening the gap. "The idea that you can naturally move from being a small, low-level producer to become a Merck or a Boeing is a fantasy ," says MI Nolan. A dysfunctional financial system is also to blame. Capital is routinely misallocated, venture funding still rudimentary, and mergers and stockmarket listings are at the government's discretion.
<b>Work, work, work
But perhaps the biggest constraint, ironically, is also China's strength: its massive pool of low-cost labour.</b> Arthur Kroeber, managing editor of China Economic Quarterly, argues that China has no real incentive to develop high-tech processes since, unlike Japan and South Korea, which were forced to grab markets from the West by sophisticated engineering and continuous process improvement, "China can compete for the next 50 years on labour costs."
While politicians in Beijing shout about China's need to develop technology , the smartest Chinese firms are taking advantage of the labour supply and actually reducing their use of technology. A study by Boston Consulting Group shows that Chinese manufacturers were more productive and made more profits if they reduced the technology used in production and returned to more people-heavy processes. Vincent Lo, a Hong Kong entrepreneur who has invested in mainland cement plants, says that his factories, though primitive compared with the hugely automated ones built by France's Lafarge, have won local contracts precisely because they employ lots of people.
<b>China should seize this advantage with both hands. Its labour will remain cheap for decades. Only labour-intensive industries can generate the millions of new jobs needed each year to maintain the social stability sought by the leadership in Beijing. Meanwhile, China can gradually build up the educational, legal and financial infrastructure needed for faster technological development in the longer term.</b>
Let us hope that the Governmentâs Planning Departments in India also encourage similar Labour Intensive Industries to create Employment for the masses.
Cheers
<b>Technology in China
The allure of low technology</b>
BEIJING AND HONGKONG
<b>China's misguided attempts to become a high-tech economy</b>
THE country's success in putting a man October, only the third tech nation to do so, was more than just a boost to national pride. It signalled the Chinese government's intention to turn the world's workshop into a technological power house. With an abundance of cheap engineers, growing research spending and plenty of useful foreign intellectual property on hand (and not terribly well protected), many of the necessary building blocks would appear to be in place. <b>To the consternation of many firms in the rich world, China has already become a big exporter of electronic components, DVD players and digital cameras. Chinese manufacturers, such as Legend in personal computers and Ningbo Bird in mobile-phone handsets, have seized leading positions in China's domestic market.</b> A few such as TCL, a TV manufacturer; Huawei, which makes telecoms switching gear; and Haier, a white-goods group-are building a global presence.
<b>This is threatening to inflame already raw trade relations with the rest of the world. The prime minister, Wen Jiabao, recently called on America to open its high tech sector to China in return for trade concessions. Meanwhile, in a bald display of protectionism, foreign computer and chip-makers have been banned (since December lst) from selling some wireless products in China unless they incorporate Chinese encryption standards sourced from 11 named Chinese firms. If the rule is enforced, Dell, Intel, Sony and others may have to choose between sharing technology or curtailing shipments to China.
A handful
So will China become the next technology superpower? Actually, probably not-at least, not anytime soon. Its successes so far are restricted to a handful of firms, most are either protected or exceptional, rising through cracks in China's planned economy. On December l0th, at a seminar in Beijing on Chinese technology organised by China Economic Quarterly, a research publication, Ming Zeng, a professor at Insead, near Paris, and Beijing's Cheung Kong Business School (and a noted optimist on Chinese firms) admitted: "1 spent five years hunting for examples of successful high-tech companies in China. After all that work, I can only find three or four."
Overall, China's technology base remains limited and the capital infrastructure needed to produce advanced, high tech goods largely absent. And while more and more high-tech goods are made in China, almost all the value is being captured by foreign companies (see chart). Writing in the quarterly, Daniel Rosen, a visiting fellow at the Institute for International Economics in Washington, DC, argues that, on close inspection, "China's high-tech exports turn out not to be so very high-tech-nor, indeed, very Chinese."
Of $325 billion of exports in 2002, China's Ministry of Commerce rated only 20% as genuinely high-tech. And those were mostly mature commodities, such as DVD players and laser printers. The brains of these machines, namely their semi conductor chips, were almost all imported-reflected in China's high-tech trade deficit of around $15 billion. What's more, 85% of its high-tech exports between January and August 2003 were accounted for by foreign enterprises in China.</b>
It is the same story with semiconductors, an industry China has explicitly targeted for development. The country is a voracious consumer of chips and an increasingly important location for silicon wafer plants, providing an estimated 19% of world capacity this year. <b>Yet its indigenous industry remains tiny and low-tech. Foreigners control most of the chip plants in China.</b> These, in turn, concentrate on low-value assembly and testing rather than design and manufacture.
<b>While foreigners own virtually all of the intellectual property and most of the high-tech manufacturing capacity in China, piracy will remain an issue. Currently, General Motors, Toyota and Nissan are each embroiled in disputes over stolen copyrights.</b> But Peter Nolan, a China specialist at Britain's Cambridge University Judge Institute of Management, says that the counterfeit issue is overblown, arguing that foreign multinationals generally "have sophisticated ways to protect their hard-won technology". Mr Nolan argues that China's ability to upgrade technology through joint ventures has been exaggerated. So moves to tip the playing field by asserting Chinese standards are actually a sign of weakness rather than strength.
<b>Why has China been so slow to climb the technology ladder? History is one explanation. Under communism, most technological development was state-directed and a disaster. State-owned enterprises still grapple with legacies of poor management and a lack of sophisticated systems. Most private companies are too small yet to pour much money into innovation.</b>
Meanwhile, global corporations are widening the gap. "The idea that you can naturally move from being a small, low-level producer to become a Merck or a Boeing is a fantasy ," says MI Nolan. A dysfunctional financial system is also to blame. Capital is routinely misallocated, venture funding still rudimentary, and mergers and stockmarket listings are at the government's discretion.
<b>Work, work, work
But perhaps the biggest constraint, ironically, is also China's strength: its massive pool of low-cost labour.</b> Arthur Kroeber, managing editor of China Economic Quarterly, argues that China has no real incentive to develop high-tech processes since, unlike Japan and South Korea, which were forced to grab markets from the West by sophisticated engineering and continuous process improvement, "China can compete for the next 50 years on labour costs."
While politicians in Beijing shout about China's need to develop technology , the smartest Chinese firms are taking advantage of the labour supply and actually reducing their use of technology. A study by Boston Consulting Group shows that Chinese manufacturers were more productive and made more profits if they reduced the technology used in production and returned to more people-heavy processes. Vincent Lo, a Hong Kong entrepreneur who has invested in mainland cement plants, says that his factories, though primitive compared with the hugely automated ones built by France's Lafarge, have won local contracts precisely because they employ lots of people.
<b>China should seize this advantage with both hands. Its labour will remain cheap for decades. Only labour-intensive industries can generate the millions of new jobs needed each year to maintain the social stability sought by the leadership in Beijing. Meanwhile, China can gradually build up the educational, legal and financial infrastructure needed for faster technological development in the longer term.</b>
Let us hope that the Governmentâs Planning Departments in India also encourage similar Labour Intensive Industries to create Employment for the masses.
Cheers